Fed officials wanted more power over Wall St during 2008 crisis

WASHINGTON Feb 21 (Reuters) - U.S. central bankers thought
they should get more regulatory powers in return for providing
cheap cash to Wall Street banks during the 2008 credit crisis,
according to Federal Reserve transcripts released on Friday.

Powerful investment banks such as Goldman Sachs and
Morgan Stanley had access to a raft of measures to prop
up markets during the 2008 credit meltdown, but the Federal
Reserve had little say over them.

"I am just a little worried about being taken advantage of
here," Richard Fisher, head of the Federal Reserve Bank of
Dallas, said in a March 2008 conference call of the Fed's
policy-setting Federal Open Market Committee (FOMC).

"The question is, what do we get in return, and how do we
make sure that, since we are not the regulator of these dealers,
there is indeed discipline?" the transcripts show Fisher as
saying.

That concern foreshadowed later efforts to do away with the
expectation that the fear of a financial meltdown would force
governments to always stand behind banks in a crisis, something
that Wall Street critics say can encourage reckless behavior.

The 2010 Dodd-Frank Wall Street reform law prohibits
taxpayer-funded bailouts of "too-big-to-fail" banks, but some
politicians have pushed for further measures to ensure there is
not a repeat of the crisis-era bailouts.

The Fed, which is still dealing with fallout from the crisis
and the 2007-2009 recession, released transcripts of all 2008
meetings of its FOMC on Friday after the typical five-year lag.

The U.S. Securities and Exchange Commission oversaw the
securities activities of the biggest investment banks in 2008,
and only monitored the parent companies through a voluntary
system known as the "Consolidated Supervised Entities" program.

While Wall Street investment banks were not regulated by the
Fed, they could participate in the central bank's emergency
measures to provide them with more collateral and to prop up
short-term lending and prevent a further spreading of panic.

"My concern is that the safety-and-soundness disciplines
that we apply don't appear to be applied to these
broker-dealers," the Dallas Fed's Fisher said at the March
meeting.

During that year, the independent investment banks all
succumbed to the crisis in rapid succession. Bear Stearns was
rescued by JPMorgan in March, while Lehman Brothers went
bankrupt in September, setting off a global panic.

Also that month, Merrill Lynch was bought by Bank of America
, while Morgan Stanley and Goldman Sachs changed their
legal status to become bank holding companies, putting them
under Fed oversight.

In the months leading up to the Lehman bankruptcy, the Fed
and the SEC signed an agreement to share information on
supervising the broker-dealers, but some policymakers were
already saying more was needed.

"We have an opportunity to start with a blank sheet of
paper, with four institutions over the period, and figure out
how to be really, really good regulators," Kevin Warsh, then a
Fed board governor, said in a June 24 meeting.

Some also were worried about the increased concentration of
the U.S. financial industry, as several players fell away or
were gobbled up by larger banks, saying this added to the
too-big-to-fail problem.

Dodd-Frank cracks down on big banks through tough capital
and liquidity standards, and gives the Fed greater power over
the largest financial firms. The law also requires them to craft
plans, known as living wills, showing how they could go through
bankruptcy rather than being bailed out in a crisis.